Iran–US conflict: What has changed in financial markets so far?
The escalation in Iran–US tensions has triggered a broad market repricing, with Brent crude rising about 53% from $72 to near $110 per barrel, intensifying inflation expectations. The US dollar strengthened across major currencies, reflecting a shift toward safer assets, while global bond yields rose as investors demanded higher returns. Nigeria was not insulated, as Eurobond yields increased by an average of 0.41 percentage points, signalling tighter external financing conditions. At the same time, capital outflows from emerging markets have accelerated, reinforcing global financial tightening and increasing pressure on risk assets.
Introduction
The recent escalation in tensions between Iran and the United States has begun to filter into global financial markets, with early signals emerging across oil prices, exchange rates, and fixed income instruments. While the full impact remains uncertain, initial market movements provide insight into how investors are pricing risk, liquidity, and policy expectations in the near term.
Investors demand higher yields amid rising inflation expectations
Investors are increasingly demanding higher yields on bonds in anticipation of rising inflation. Soaring oil prices, now above $100 per barrel since the onset of the conflict, have heightened inflation expectations, particularly as prices of AGO (diesel), PMS, and cooking gas begin to adjust upward.
Brent crude prices have risen from around $72 per barrel to approximately $110, representing a 52.78 percent increase. This development has triggered a sell-off across global bond markets, as investors reprice inflation risks.
As a result, 10-year bond yields have increased across major economies including the U.S., U.K., Japan, Germany, as well as emerging markets such as South Africa and Turkey. This reflects growing uncertainty about the real value of future cash flows, prompting investors to demand higher yields as compensation.
However, Kenya and Nigeria 10-year bond yields edged lower, signalling resilient amidst global tensions.
US dollar strengthens as capital exits emerging markets
Global currency movements reinforce the shift toward tighter financial conditions. The US dollar strengthened broadly against major currencies, with the euro and pound declining by 2.2 percent and 1.9 percent respectively, while commodity-linked currencies such as the Australian and New Zealand dollars fell more sharply by 3.0 percent and 4.2 percent.
Notably, the dollar also gained against traditional safehaven currencies, rising by 1.7 percent against the Japanese yen and nearly 4.0 percent against the Swiss franc. This suggests that the current environment is not driven solely by risk aversion, but also by a broader repricing of global interest rates and inflation expectations in favour of the US dollar.
Emerging market currencies have similarly come under pressure, as reflected in the depreciation of the Turkish lira, South African Rand, and Nigeria Naira.
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